Do I Have to Pay Zakat on My Pension?

I work in an organization, where members of staff, when reaching the age of 67, receive pension. Members of staff pay a tax-free amount of money and the organization pays an amount of money. This situation continues until they reach the age of pension. If a member of staff wills to take some of it while he/she is between the age of 60 and 67, the tax that he/she was exempted from. Question: Should I pay Zakat on this money? If yes, is the amount paid as tax included? If the amount is increased by the bank where it is lodged, is it considered usury?

As-Salamu Alaykum wa Rahmatullahi wa Barakatuh.

In The Name of Allah, Most Gracious, Most Merciful.

All Praise and Thanks are due to Allah, and peace and blessings be upon His Messenger.

In response to this question, the European Council for Fatwa and Research (ECFR) issued the following Fatwa:

This is one of the types of social security that secures an amount of money given to employees when they reach a certain age and is formed by contributions made by employers and employees, and it is sometimes tax-free if it is not claimed.

In terms of Zakat, because this sum of money is not fully owned by employees in a way that gives them the right to dispose of it, no Zakat is paid annually, but only when it is received.

Tax is not included in Zakat but is deducted from the original amount prior to calculating the due Zakat because tax is a requirement to fulfil.

The increase paid by the traditional bank is forbidden because it is usury. One may receive it to give it as charity and no Zakat is paid on it. If the money is deposited in an Islamic bank or a conventional bank that offers Shari’ah-compliant products, the increase is a legal investment that should be considered when calculating the due Zakat within the time frame specified for paying Zakat, even if some of the money has not been in one’s possession for a full year.

Allah Almighty knows best.


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